When I mean recently left the past two years with a company African Bank they were lending money to people unsecured lending and charging a very high interest rate thinking that that would combat the high credit risk but it caused people to default even more and yeah they got wiped out bye-bye predators is quite a serious risk it can bring down financial intermediaries it did play a big role in the financial crisis we called it the credit crunch because one of the things as people thought okay we’re in a recession things are going crazy let’s try and reduce our risks and easy risk to reduce as credit risk by just stop lending but by stop lending money you create you know a liquidity trap so people can do business and you know hence the recession that came from the credit crisis okay anyway and let’s get back to these these two components amount of loss that’s very easy to to calculate

I mean if you lend someone a hundred grand you know that the amount of loss will be a hundred Rand if you lend them a hundred Rand and if they don’t repay you’ve got a collateral and a 50-round cellphone then you know 50 Rand is the amount of loss although we’ll talk more about recoveries a little bit later but this is the one that I do have a bit of a problem with how on earth do you calculate the probability or how do you say someone has a 10% chance of defaulting it’s it’s almost a pseudo probability that they’re coming up with you and I don’t think it is possible to accurately predict or model the true probability of an individual defaulting the best that we can do is do some sort of estimate for the category that that person falls under

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